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Human Factor in Supply Chain Risk management

Supply chain risk management professionals have been designing and developing tools and techniques for capturing data, conducting an assessment and then taking mitigation actions. There have been complex mathematical formulae and statistical estimation techniques, as well as detailed business rules for any decision support system for supply chain risk management. There would be enlightened debates among the academics and the researchers about the distribution algorithms to be adopted and the forecasting models to be deployed for define an accurate picture of the future. They would enable classifying the risk sources and the risk drivers to come out with the right assessment of risk. But in this milieu of mathematics, statistics, rules and regulations one critical aspect is given the back seat…. the human factor. It is rightly said the risk appetite of an enterprise is inverse of the risk averseness of its decision makers.

Take the classic case of the recent imbroglio of the recalls from Toyota. It is expected that Toyota will recall more vehicles this year than what they will manufacture. And if the recall further hits their ECM software for acceleration, then it would be even worse. But do you really think Toyota employees actually did not know about the recalls, till they were forced to do so starting Jan-2010. Or, do you think that the NHTSA was also not very vigilant in checking trends in market complaints, till the fatal accidents actually did take place. Let me tell you, that in all such cases when these specific types of complaints start trickling in or a specific market return part begin to block the maximum space in warranty parts racks in an organization’s backyards, the organization would have sensed “Danger” right then. It is now a question: “How much is too much???”

And to answer this question, it takes the organization DNA to feel the “itch” for recalls. Every individual in the organization, at least in the Engg & Design, Production, QA, Service & Warranty, Finance & Control and Marketing & Sales would have developed their “personal” opinion about the right time. And this is a big gamble. If it is too early, then one would have raised the curtain when the stage was being prepared. This would lead to embarrassment and hilarious situation. And if it is too late, the consternation and frustration of the audience who have waited far too long will lead to a string and “violent” retaliation. And in both the circumstances the reputation of the organization is at stake.

Also one important factor is the clash of interests among the functional groups. A service engineer would be looking at recalls as a tool for replying to disgruntled customer queries, a quality engineer would be looking at recalls as a means of scoring a brownie and a marketing executive may be looking at recalls to demonstrate their evidence for a quality slogan. Engg and Production have completely opposite interest, to guard their “fortress” against any recalls. And the finance accountant would be left praying that these clashes should not upset his balance sheet beyond repair. In a nutshell, with each one having their overt and covert agenda from recalls, the gestation period to “open the Pandora’s Box” is far too long. And it is this human factor which finally defies all tools, mathematics, statistics and “Early Warning Systems”. Don’t you think so??

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